Dec. 14 (Bloomberg) -- U.S. stocks fell a second day as the
federal budget stalemate dragged on, while Treasuries rose after
a drop in consumer prices. Commodities climbed and Chinese
stocks surged on signs of manufacturing growth.

The Standard & Poor’s 500 Index dropped 0.4 percent to
1,413.58 at 4 p.m. in New York, erasing a weekly advance as
Apple Inc. slid 3.8 percent and was the biggest drag on the
gauge. Ten-year U.S. Treasury yields decreased three basis
points to 1.70 percent after rising for three days. The S&P GSCI
gauge of 24 commodities climbed 0.9 percent as oil added about 1
percent, while the dollar weakened against 13 of 16 major peers.

Senate Republicans are discussing a legislative strategy to
break the budget standoff that would let Congress extend tax
cuts for all except the highest income levels, said two
Republican aides who spoke on condition of anonymity. President
Barack Obama and Republican House Speaker John Boehner remained
deadlocked yesterday after the two met to discuss the budget.

“The chances of some type of grand bargain in Washington
are significantly diminishing as time passes,” said Eric Teal,
chief investment officer at First Citizens Bancshares Inc.,
which manages $4.5 billion in Raleigh, North Carolina. “On a
company level, investors are looking at the competitive
landscape for Apple and they see threats.”

Market Movers

The S&P 500 slipped from an almost two-month high
yesterday. Apple, the most valuable company, slid today as UBS
AG cut its share-price estimate. The cost of Apple options
relative to other technology companies has risen to a four-year
high, reflecting concern the iPhone and iPad maker’s dominance
may be threatened by rivals such as Google Inc. and Nokia Oyj.

Best Buy Co. slumped 15 percent after extending founder
Richard Schulze’s deadline to make an offer to take the company
private. U.S. Steel Corp. surged 6.8 percent and Freeport-McMoRan Copper & Gold Inc. rallied 4 percent to pace gains in
commodity shares, the only group to advance among the 10 main
industries in the S&P 500.

Budget Talks

The S&P 500 tumbled as much as 5.3 percent after the Nov. 6
elections set up a budget showdown between Obama and House
Republicans, then erased the drop this week before turning lower
again in the past two sessions. The benchmark gauge of U.S.
stocks is up 12 percent for 2012.

Obama and Boehner met for a third time at the White House
yesterday to discuss averting spending cuts and tax increases
before a year-end deadline. Boehner and Obama met for almost an
hour yesterday, with no public announcement of progress. In
January, more than $600 billion in spending cuts and tax
increases, the so-called fiscal cliff, are scheduled to begin.

Under one scenario being discussed by Republicans, the
House would vote on two separate bills, the aides said. One
would extend tax cuts for all income levels. That would have
wide Republican support though Obama has said he won’t accept
it. The other bill would allow tax cuts for top earners to
expire, as Obama demands. Democrats would support that plan and
Republicans would be likely to provide enough votes to pass it
in the House, one aide said. The Democratic-controlled Senate
would pass and send that measure to Obama, the aide said.

Economic Data

The 0.3 percent decrease in the consumer-price index was
the first drop since May, the Labor Department reported. The
median estimate of 80 economists surveyed by Bloomberg called
for a 0.2 percent drop. The core index, which excludes food and
energy costs, climbed less than projected. Industrial production
rose in November by the most in two years as manufacturers
recovered from superstorm Sandy. Output grew 1.1 percent last
month after a revised 0.7 percent drop in October that was more
than initially estimated, the Federal Reserve reported.

Oil rose 1 percent to $86.73 a barrel in New York, while
gasoline, heating oil, corn sugar and soybeans climbed more than
1 percent to lead gains in commodities. Nickel and zinc rose at
least 0.8 percent. China is the world’s biggest buyer of
industrial metals.

“The most recent China manufacturing data is indeed
encouraging for commodities as China is still one of the biggest
consumers for many natural resources,” said Frederique Dubrion,
president and chief investment officer of Blue Star Advisors SA
in Geneva. “Monetary-easing programs and the stabilizing global
outlook will give more opportunity within materials.”

European Markets

More than three stocks rose for every two that fell on the
Stoxx Europe 600 Index even as the regional benchmark closed
about 0.1 percent lower. Akzo Nobel surged 7.1 percent, its
biggest advance in 14 months, as PPG Industries Inc. agreed to
buy the Dutch company’s North American paint business for $1.05
billion.

Alcatel-Lucent SA soared 7 percent after the company
reached a 1.6 billion-euro ($2.1 billion) financing deal. The
French phone-equipment maker’s bonds rose to the highest in
eight months.

The reading on the Chinese purchasing managers’ index was
50.9, according to HSBC Holdings Plc and Markit Economics,
compared with the 50.8 median estimate of economists surveyed by
Bloomberg News. November’s final reading was 50.5, the first
time in 13 months that the gauge exceeded the 50 mark dividing
expansion from contraction.

Japan’s large manufacturers became the most pessimistic
since March 2010, the central bank’s quarterly survey showed.
The Tankan index fell to minus 12 in December from minus 3 in
September, its fifth straight negative reading. The median
estimate of economists surveyed by Bloomberg News had called for
a reading of minus 10. A negative figure means that pessimists
outnumber optimists.

The MSCI Emerging Markets Index was little changed
following a seven-day advance as China’s rally and a 3.3 percent
surge in Argentina’s benchmark gauge were offset by declines of
at least 0.8 percent in Taiwan, Turkey and Israel.